Cyprus and Russia labor income
I am currently employed by a Russian company based in Cyprus and I frequently work for our Russian office on IT matters. My total income is made up of three items: salary I receive from Cyprus, personal allowances paid by my employer for business trips to Russia, and additional remuneration from the Russian parent company for the work I do there.
How will my income in Cyprus and Russia be taxed?
Thanks for your question.
It appears that you are a tax resident of Cyprus, so your worldwide income will be taxed according to the Cyprus Income Tax Law 118 (I) / 2002. Also, since you are a tax resident of Cyprus , you will be able to apply the provisions of the double taxation agreement between Cyprus and Russia (1998 tax treaty).
First, your income from Cyprus (salary and personal allowance) will be taxed according to progressive tax rates. However, you may qualify for some tax exemption under the “90 day rule” mentioned in article 36 (5) of the Cyprus Income Tax Law. In principle, the “90-day rule” states that income from salaried services rendered outside of Cyprus for more than 90 days in a tax year will be exempt from tax as long as the service is provided to a non-Cyprus resident employer or to a permanent establishment of an Employer resident in Cyprus. To illustrate, let’s say your salary in Cyprus is € 60,000 per year, an allowance of € 10,000 per year and you worked for your Russian office for 4 months during the fiscal year. Under the 90 day rule, 4/12 (i.e. € 20,000) of your salary in Cyprus and the € 10,000 allowance will be exempt from Cyprus tax. The remaining € 40,000 of your income will be taxed in Cyprus at progressive tax rates.
Regarding the payments you received from the Russian company, although you may have tax withheld in Russia according to article 15 (1) of the 1998 tax treaty, this income will still be exempt from tax in Cyprus under the “90 day rule”. From a pragmatic point of view, it is preferable to obtain an exemption from withholding tax from the Russian tax authorities, as it will save you time in the process of recovering the tax withheld in Russia.
Finally, it is important to note that you must have, in case the Cyprus tax authorities request it, evidence that you spent more than 90 days outside of Cyprus (boarding passes, border passport control stamps, etc.) and justify your work for the Russian company.